Sales and Use Tax Annotations

Annotation 330.3012

(a) IN GENERAL

330.3012True Lease vs. Outright Sale. When the only basis for regarding a transaction structured as a lease, as a true lease and not a sale under a security agreement, is the right of the lessee to terminate the contract, that termination right must be within the control of the lessee. If the lessee's only right to terminate is based on the actions or inaction's of the lessor, such as a material breach of contract or warranty, the agreement will be regarded as an outright sale under a security agreement. Such a termination provision alone, leaves the control with the lessor and thus the lessee must be regarded as bound for a fixed term within the meaning of section 6006.3. 6/28/94.